After the close of each quarter, we send our clients a Market Note. This is the note we sent after the end of the third quat
Let’s talk about where we are in the markets and what the data suggest going forward.
· The US stock market (represented by the S&P 500) closed the quarter at an all time high up 5.25% for the quarter after rebounding from an 8.5% pullback in August. Here are some data points for context.
· It is a bullish (i.e. positive) technical signal when the market hits all time highs.
· When the market is up 10% or more in the first half (which it was), there is an 85% chance it will be positive in the second half. As we were up 5.25% for the quarter, history says that 85% of the time we would keep at least some of that gain throughout the remainder of the year.
· Stocks are not cheap when measured by price per dollar of earnings or price per dollar of forward earnings.
· The Federal Reserve began a rate cutting cycle in September and for perspective, the beginning of a rate cutting cycle is usually positive 3 months and 6 months out historically, but where we go in the next month is a coin flip.
· On the other hand, with unemployment creeping up and inflation trending down, that suggests that monetary policy is overly restrictive. On Friday September 27, the Fed’s preferred gauge of inflation (the PCE personal consumption expenditures price index) rose 0.1% for the month and is up 2.2% over the last 12 months, which is the lowest reading since February 2021. That is positive for consumers, equity holdings and bond prices.
We do have an election coming up. There are a lot of wealth managers and family offices that don’t want to commit capital until after election day, irrespective of who wins. Uncertainty as much as anything else can freeze market participants.
Also, the markets tend to be a whole lot more apolitical than the American citizenry as a whole. That doesn’t mean policy does not affect the economy which in turn affects the markets, because it can. It also does not mean markets can’t lurch in one direction or the other. For example, a headline that “unrealized capital gains may be taxed,” would be viewed negatively by the markets. All we are saying is that it is common for individuals on either side of the aisle to want to sell when the other Party goes into power and buy when their Party is in power and the market does not operate that way. All too often the market goes up irrespectively. That speaks to the underlying intrinsic strengths of the American economy and the dynamism and creativity and work ethic of its people.
On the other hand if we look at negative market events, the 2007-2009 Global Financial Crisis was caused by a real estate bubble that built up over decades that popped. The causes were to a degree bipartisan. Even the 2020 Covid related financial crisis was caused by an external (exogenous) shock, not domestic politics.
That also suggests, making buys or sells based on headlines or one’s politics is going to be counterproductive more than it isn’t.
As always, we are here to talk if you have questions.
To learn more about Meridian's market views and how they are incorporated into investment portfolios, reach out to us to schedule an introductory phone call at (843) 212-6828 or contact@meridianria.com.
About Joshua
Joshua Henry is the founder and Managing Principal of Meridian Financial Advisory (meridianria.com), an independent, fee-based wealth management company located in South Carolina, serving people locally and across the country, that focuses on providing wealth management solutions primarily to affluent individuals over age 50 and their families. Joshua is passionate about helping people have a better life by designing and implementing customized financial plans that bring clarity and confidence. Joshua is a CERTIFIED FINANCIAL PLANNER™(CFP®), a Certified Investment Management Analyst® (CIMA®) Professional, and earned a Bachelor of Arts degree in Political Science from Cedarville University and a Master of Business Administration degree with a concentration in Corporate Finance from Salve Regina University. The courses for the Corporate Finance concentration were taken from the Kelley School of Business at Indiana University. He has held workshops on Social Security Claiming Strategies, IRA Planning, and Career Coaching for Executives in between jobs. Josh has also taught finance at the university level. When he’s not working, Josh teaches adult Sunday School at his church in Pawley Island, SC. He enjoys traveling, reading, and time with his family. To learn more about Josh, connect with him on LinkedIn.
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